Malaysia’s Cagamas Plans Dollar Debt With Costs Near 8-Week Low

Cagamas Bhd., Malaysia’s state-owned mortgage corporation, is arranging documentation to help it sell U.S. dollar-denominated bonds as yield premiums hold near the lowest since March.

The Kuala Lumpur-based company, which buys and securitizes home loans, has invited banks to submit proposals for a mixed Islamic and non-Islamic bond program in the U.S. currency, according to three people familiar with the matter, who asked not to be identified because the details are private. Issuers in the Asian region outside Japan pay an average 270 basis points more than benchmark rates to sell dollar debt, 1 basis point from an eight-week low touched last week, JPMorgan Chase & Co. indexes show.

1Malaysia Development Bhd., the state investment fund led by Prime Minister Najib Razak, led $4.07 billion of sales by Malaysian issuers in the U.S. currency this year, 25 percent more than in the first five months of 2012, according to data compiled by Bloomberg. Cagamas’s sale, proceeds of which will fund loan and debt purchases, would be its first foreign currency issuance, the data show. The borrower has the equivalent of $1.2 billion of bonds due this year.

“From a yield perspective and an all-in cost perspective, these are pretty good times to issue,” said Kaushik Rudra, the Singapore-based global head of credit research at Standard Chartered Plc. Domestic markets are “still the natural option for most of the issuers out of Malaysia but obviously if there’s an opportunity that comes through in the dollar markets they will certainly take it.”

1MDB, Malayan

Malayan Banking Bhd. was the last company from the Southeast Asia nation to sell dollar debt, raising $200 million from a sale of five-year 1.76 percent bonds on May 2, data compiled by Bloomberg show.

1MDB sold $3 billion of 4.4 percent 10-year notes in March, the data show. Prime Minister Najib is the chairman of the fund’s advisory board.

The cost of insuring Asia-Pacific corporate and sovereign bonds from default was little changed today, according to traders of credit-default swaps.

The Markit iTraxx Australia index held at 99 basis points as of 10:25 a.m. in Sydney, according to Westpac Banking Corp. The index fell yesterday for the fourth consecutive trading day after reaching a near two-week high on May 14, according to data provider CMA.

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The Markit iTraxx Asia index of 40 investment-grade borrowers outside Japan was trading at 101 basis points as of 8:24 a.m. in Hong Kong, also little changed from yesterday, Australia & New Zealand Banking Group Ltd. prices show. The gauge has fallen 21.3 basis points this quarter, according to ANZ and CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

Japan Risk

The Markit iTraxx Japan index was little changed at 77.5 basis points as of 9:25 a.m. in Tokyo, Citigroup Inc. prices show. The index closed at 74.3 on May 13, its lowest level in almost five years, according to CMA.

Credit-default swap indexes are benchmarks for insuring bonds against default and traders use them to speculate on credit quality. A drop signals improving perceptions of creditworthiness, while an increase suggests the opposite.

The swap contracts pay the buyer face value in exchange for the underlying securities if a borrower fails to meet its debt agreements.